Friday, March 19, 2010

Say Goodnight to the Bad Guy! Germany, Greece, and the IMF

The Financial Times reports today, "Berlin shifts stance on IMF role in Greece."

So, one day Germany says it won't bail out Greece.
Next day, Greece says it’ll go to the International Monetary Fund (IMF).
So then, Germany says it doesn't want the IMF messing in the eurozone.
Next thing you know, Germany says the IMF-option is back on the table.

What's going on here?

Somebody's got to be the bad guy.

Somebody's got to provide liquidity to Greece, but also make sure that all this money doesn't simply go towards subsidizing the bad policies that got Greece into this mess in the first place.

Changing policies means imposing painful austerity on Greece. Eventually, this might entail raising interest rates, placing ceilings on public credit, cutting public expenditures, and raising taxes. The value of the euro might also slip... which is why the onus of having an outside actor - the IMF - is distasteful to Germany. Oh - and the bad guy's got to slap around Greece bad enough to scare Spain, Portugal, maybe even Italy, or it might have to play bad guy in those countries later...

So then who will be the bad guy? Who will crack the whip?

The Greek government will get plenty of blame ... they'd like to spread some of it around.

The German government has been getting blame from throughout Europe for austere monetary policy for generations.

How about bringing in the IMF so they can share some of the blame as things go from bad to worse, as they surely will?

Note that by bringing in an international organization with as obscure governance as the IMF - whose membership includes all the countries in the world, and few understand who's really in control... many just figure it must be the United States - governments can obfuscate the responsibility for painful policy choices.

The IMF may yet have to play Dark Knight in this Greek tragedy - making the tough choices.

Why should my US audience care?

Well, we've been running a structural deficit for so long, our national debt is rapidly approaching 100% of our over 14 trillion dollar gross domestic product. A really big chunk of this debt is owed to China.

Some day - perhaps some day soon - we will have to pay the piper. We'll be the country that is raising interest rates, cutting public expenditures, raising taxes. Our government will look to scapegoat someone. We'll look for a bad guy. Of course, the IMF is too small to bail us out. They don't even have one trillion dollars, much less ten. So, we'll have to be more creative in painting the picture of a bad guy. We'll have to come up with new obscure ideas, like "currency manipulator" or "protectionist" ... maybe we'll just resort to ol'fashioned US xenophobia. Yeah, we'll probably just blame the folks who lent us the money in the first place. China'll be our bad guy.

You need the bad guy,
so you can point your *** fingers...and say, "That's the bad guy."
So...what does that make you? Good? You're not good.
You just know how to to lie.
Me, I don't have that problem.
Me, I always tell the truth.
Even when I lie.
So say good night to the bad guy!
Come on.
The last time you gonna see a bad guy like this again, let me tell you.

With apologies to Oliver Stone, Brian De Palma, and Al Pacino.

For more on these themes, see:

(1) Scarface (1983)
(2) The Dark Knight (2008)
(3) The IMF and Economic Development (2003)


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